US inflation slows to 6.4%, but price pressures re-emerge

[Yo_Mama_Been_Loggin]

WASHINGTON (AP) — The pace of consumer price increases eased again in January compared with a year earlier, the latest sign that the high inflation that has gripped Americans for nearly two years is slowly easing.

At the same time, Tuesday’s consumer price report from the government showed that inflationary pressures in the U.S. economy remain stubborn and are likely to keep prices elevated well into this year. Rising costs will also keep pressure on the Federal Reserve to raise its benchmark interest rate further and to keep it there through year’s end.

Consumer prices climbed 6.4% in January from a year earlier, down from 6.5% in December. It was the seventh straight year-over-year slowdown and well below a recent peak of 9.1% in June. Yet it remains far above the Federal Reserve’s 2% annual inflation target.

And on a monthly basis, consumer prices increased 0.5% from December to January, much higher than the 0.1% rise from November to December. More expensive gas, food and clothing drove up last month’s figure.

https://apnews.com/article/inflation-federal-reserve-system-business-cb7f80cdf0a55088a85cc3da20a8b155

[bucolic_frolic]

1. Inflation's persistence has not been a popular message here on DU

Every time I post that the Fed is behind the curve and needs to raise interest rates more, I am lambasted that inflation is improving and there is little inflation to worry about. Presumable they're worried about Biden and the economy and jobs. But my opinion remains that the Fed will not squelch inflation without 10% interest rates, and that this is what they did in the 1970s, the war was already won, no worries, and then inflation returned with avengence. Remember Gerry Ford's W.I.N. buttons? Whip Inflation Now. Inflation persisted for an additional 6 years or so.

This week's promo from a well-respected economist says recession will begin mid-year. Last month he opined that the S&P 500 will bottom, on average, 16 months after the Fed pivots. We're 4-6 months away from that. So recession could well persist into election month, November 2024. Ahem.

But go on believing that the inflation problem is behind us. Just will it away. MTG will prove less persistent than inflation.

[Metaphorical]

3. Russian / Ukraine War and Labor Shortages

Grain costs are dropping, but UKR/RUS is still disrupting global markets. I also suspect that we're beginning to see one impact of declining birth rates: the emergence of persistent inflation. Fewer people are entering the workforce, even as the Boomers become overwhelmingly retired. Boomer births peaked in 1954, which means that half of them hit 65 in 2019, so we're somewhere near 60% retired at this point. The population is still growing (due primarily to immigration) but the number of workers is dropping.

Why is this inflationary? Fewer workers translate into fewer farmers, factory workers, truck drivers, dock workers, and so forth, which is pushing wages up in these areas. At the same time, investors continue to demand that they get paid their dividends. This means that business owners are pushing wage increases into their overall prices, even as product stacks up on the shelves.

This is an untenable situation. Profit margins are getting squeezed, and eventually it will not be profitable for many companies that were already marginal to remain in business. Automation is one solution, but it costs money to automate, but investors are likely to see little return on their investment in that scenario (even though that's where their money is most needed). Couple that with the fact that more people are now on fixed income (see Boomer retirement above) means that they are now drawing down their nest eggs, not contributing to it. Less institutional money means more downward pressure on the exchanges.

My suspicion is that we're going to be facing 4-5% inflation for the foreseeable future.

[ClimateHawk]

4. Trading Economics is predicting

Inflation will fall to around 2% by the end of this year, which is about where it was pre-pandemic. Click on “forecast” from this link: https://tradingeconomics.com/united-states/inflation-cpi

[Amishman]

7. With the expansion of the money supply, we're many years from 2%

We increased the money supply by 40% in a few years.

Prices and wages are sticky, which means there is a huge unrealized inflationary force that will continue to push prices higher.

[FakeNoose]

2. On the subject of inflation

How many have noticed a reduction in the amount of beer in a standard beer bottle? The bottles are the same size, but the breweries - some of them at least - are filling the bottles with less beer and charging the same price.

The standard American beer bottle holds 12 fluid ounces, and that's the way it's been for probably 50 years. I recently discovered that my regular brewer (Sam Adams) and probably others are now filling the bottles with 11.2 fluid ounces. I noticed that the bottles had less beer because I always pour the contents into one of my regular steins. I thought, "Wait a minute, this can't be right!" I looked at the label on the bottle, and there it is in small print "11.2 fl. oz."

Anyone who drinks beer straight from the bottle will probably NEVER NOTICE THIS, but I did. Only because I pour my beer into a glass, and I know how high it's supposed to fill.

.8 ounce means they cheated me out of 9.27% - but they charged me the same price they always do.

If Sam Adams - a major national brewery - is doing this and getting away with it, they'll all be doing it soon enough.

[gratuitous]

5. Aren't high gas and diesel prices most of the driver for higher prices?

A truck that used to make a delivery using, say $100 worth of fuel is making that same delivery, but the fuel charge is anywhere from $150 to $250 for the same run. Doesn't that cost figure in to the price of goods on the shelves? And where is all that extra money spent on fuel, goods, and services going? Does anyone know?

[roamer65]

6. It's hard to kill inflation when u increase the money supply by 50 plus percent.

We are now experiencing higher inflation due to the massive QE early in the pandemic.

Too much actual money chasing too few goods and services.

https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

That blue line tells the truth on basic M1. From about $4T to $6.5T. The Fed lumped in all savings deposits into a reworked M1 to try to hide what they did to basic M1.